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Question 13 0/1.5 points Consider the two-period model. Consumer's have preferences over current and future consumption (c and c). Households only receive income in the second period, y! That is, income in the first period is equal to zero, y=0. Households can save, s, for the second period and receive interest rate r. The slope of the budget constraint is -(1+r). As such, an increase in r would increase the slope in (c,c') space (the standard graph). The government implements a proportional income tax, O

Question 13 0/1.5 points Consider the two-period model. Consumer's have preferences over current and future consumption (c and c). Households only receive income in the second period, y! That is, income in the first period is equal to zero, y=0. Households can save, s, for the second period and receive interest rate r. The slope of the budget constraint is -(1+r). As such, an increase in r would increase the slope in (c,c') space (the standard graph). The government implements a proportional income tax, O

Economics:
Economics:
10th Edition
ISBN:9781285859460
Author:BOYES, William
Publisher:BOYES, William
Chapter9: Aggregate Expenditures
Section: Chapter Questions
Problem 7E
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Question 13 0/1.5 points Consider the two-period model. Consumer's have preferences over current and future consumption (c and c). Households only receive income in the second period, y! That is, income in the first period is equal to zero, y=0. Households can save, s, for the second period and receive interest rate r. The slope of the budget constraint is -(1+r). As such, an increase in r would increase the slope in (c,c') space (the standard graph). The government implements a proportional income tax, O<ty'<1, but only in the second period. Derive the period budget constraints and use it to find the present value budget constraint (PVBC). Use the PVBC to solve for the slope of the budget constraint in (c,c') space. Relative to the case of no tax, how does the slope of the budget contraint change? Increases Decreases Stays the same Ambiguous
Transcribed Image Text:Question 13 0/1.5 points Consider the two-period model. Consumer's have preferences over current and future consumption (c and c). Households only receive income in the second period, y! That is, income in the first period is equal to zero, y=0. Households can save, s, for the second period and receive interest rate r. The slope of the budget constraint is -(1+r). As such, an increase in r would increase the slope in (c,c') space (the standard graph). The government implements a proportional income tax, O<ty'<1, but only in the second period. Derive the period budget constraints and use it to find the present value budget constraint (PVBC). Use the PVBC to solve for the slope of the budget constraint in (c,c') space. Relative to the case of no tax, how does the slope of the budget contraint change? Increases Decreases Stays the same Ambiguous
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